Bankruptcy

Bankruptcy isn't something which should even be consider unless all other options have been exhausted. It should never be anything but a last resort.

There are six different types of bankruptcy in the U.S. and each of them have been outlined in the Bankruptcy Code (Title 11). There are two types which are very common throughout the country, i.e., Chapter 7 and Chapter 13. But there are 4 other types which most people don't even know about. It is quite interesting and can be really helpful for people to know about all these types of bankruptcy known as "Chapters." Given below is a little information about each of them:

1. Chapter 7
This is the most common type of bankruptcy and is used for total liquidation by individuals or companies. What happens here is a person or company gives everything they own to a trustee who then sells everything and uses the proceeds to pay off their debt. The person or company will no longer be responsible for the debt but he/they will not own any property either. In the case of individuals, they don't have to give up any household items or clothes although they will be expected to continue making child support payments and even pay their taxes. This type of bankruptcy can only be applied for once every 8 years. It may be voluntary but can also be compulsory. There are some types of debt that do not qualify for this as well like student loans and home mortgages.

2. Chapter 9
This is a type of bankruptcy that is only available to municipalities. Earlier, when municipalities weren’t able to pay their debt, certain strict measures were taken in order to recover the money like increasing the tax rates. This type of bankruptcy was basically created at the time of the Great Depression since, at that time, raising the tax rates was not really helping municipalities get any more money. There are some places where state approval is compulsory prior to filing for bankruptcy under Chapter 9. Two of the most famous bankruptcy cases of this type include the Orange County, California case and the Jefferson County, Alabama case.

3. Chapter 11
The type of bankruptcy is not only available to businesses but to individuals as well. But it is usually used by corporations more than anyone else. It's similar to Chapter 7 in many ways but one major difference is that here the debtor will retain control of all his assets. Instead of involving a trustee, the debtor will be in charge with supervision from the concerned court. This type of bankruptcy basically helps a company reorganize themselves more than anything else. One important factor with Chapter 11 which many people don't know about though is that, sometimes, ownership of certain parts of an organization as well as the rights to revenue can go to some of the creditors

4. Chapter 12
This chapter is just like Chapter 13, which is discussed below, but only applies to fishermen and farmers. There weren't any specific provisions earlier for agricultural professionals and that is what led to the creation of this Chapter. Earlier, there were just general provisions which were modified on multiple different occasions with new expiry and renewal dates. However, in 2005 a permanent chapter was finally created for these professionals. There are a couple of restrictions on this type of bankruptcy though. At least 50 % of a farmer's debt has to be linked to farming operations while 80 % of a fisherman's debt needs to be linked to commercial fishing operations. But it does manage to get the major creditors off a person's back as long as the debtor doesn't create any new debts.

5. Chapter 13
This is the other common type of bankruptcy that many people already know about. The main difference between Chapter 13 and Chapter 7 Bankruptcy is that while Chapter 7 liquidates a person’s assets and immediately releases his debt, Chapter 13 is more of a rehabilitation program. Restructuring and reorganization is involved. Debtors need to create a plan which will pay off all their creditors within a maximum of 5 years. The only problem with this type of bankruptcy though is that the debtor will require a high level of disposable income in order to fund their rehabilitation plan.

6. Chapter 15
The last type of bankruptcy is also the most difficult and complicated. The main differentiating factor here is that the assets of the debtor will be in multiple countries. The provisions that are outlaid in this Chapter basically help mitigate any issues that trustees may face while involved in cross-border litigation. This Chapter allows U.S. courts the discretion to either provide additional assistance with foreign law proceedings or not to.